1. Which of the following is the best definition of economics? A. The study of how individuals...
Question:
1. Which of the following is the best definition of economics?
A. The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided
B. The study of how consumers spend their income
C.The study of how business firms decide what inputs to hire and what outputs to produce
D. The study of how the federal government allocates tax dollars
2. Suppose during a year an economy produces $6 trillion of consumer goods, $1 trillion of investment goods, $2 trillion in government services, and has $3 trillion of exports and $2 trillion of imports. GDP would be:
A. $8 trillion.
B. $10 trillion.
C. $12 trillion.
D. $14 trillion.
3. Which of the following is NOT included in U.S. GDP?
A. Toys produced by a U.S. firm located in China
B. Beer brewed in Colorado and purchased by a German tourist
C. A car made by a Japanese auto producer in Kansas
D. Corn grown in Iowa and exported to Africa
4. Which of the following is not included in GDP as part of government services?
A. Social Security benefits
B. Military equipment
C. Highways and bridges
D. Education
5. A price at which the amount people wish to buy exceeds the amount that people wish to produce (given upward-sloping supply curves):
A. Lies above the equilibrium market price.
B. Lies below the equilibrium market price.
C. Will induce a shift in the demand schedule to achieve equilibrium.
D. Is impossible.
Figure 1 - Supply and demand
6. If the actual market price is held to $10 per unit in Figure 1, there will be a:
A. Surplus of 1 unit.
B. Surplus of 2 units.
C. Shortage of 1 unit.
D. Shortage of 2 units.
7. The law of diminishing marginal utility helps to explain the:
A. Upward sloping supply curve.
B. Equilibrium price.
C. Downward sloping demand curve.
D. Equilibrium quantity of a good in the marketplace.
8. Suppose a university raises its tuition by 8 percent and as a result the enrollment of students drops
by 4 percent. The price elasticity of demand is closest to:
A. 8.0.
B. 4.0.
C. 2.0.
D. 0.5.
9. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:
A. Decreasing.
B. Relatively inelastic.
C. Relatively elastic.
D. Perfectly elastic.
10. If the price of potato chips rises and the demand for pretzels rises, then potato chips and pretzels are:
A. Substitutes.
B. Complements.
C. Price inelastic goods.
D. Price elastic goods.
11. If an additional unit of labor costs $40 and has an MPP of 50 units of output, the marginal cost is:
A. $2,000.00.
B. $40.00.
C. $1.25.
D. $0.80.
12. If it costs $30 to produce the first unit of a good, and if the marginal costs of the next six units produced are $28, $27, $25, $23, $24, $25, respectively, then the average cost when seven units are produced must equal:
A. $24.
B. $25.
C. $26.
E. Could not tell from the information provided.
13. In a perfectly competitive industry an individual firm CAN NOT affect the:
A. Market price of its product.
B. Number of employees that it employs.
C. Quantity of output it produces.
D. All of the above.
14. A rightward shift in market supply curve could be caused by:
A. An improvement in technology.
B. An increase in the market price.
C. An increase in wages.
D. The expectation that the market price will fall in the future.
15. When a new firm enters a market, it:
A. Pushes the equilibrium price upward.
B. Reduces the profits of existing firms.
C. Shifts the market supply curve to the left.
D. Shifts the market demand curve to the left.
16. Suppose a monopoly firm produces a medical device and can sell 15 items per month at a price of $2,000 each. In order to increase sales by one item per month, the monopolist must lower the price of its medical device by $100 to $1,900. The marginal revenue of the 16th item is:
A. $100.
B. $400.
C. $1,900.
D. $2,000.
17. Which list has market structures in the correct order from the most to the least market power?
A. Perfect competition, oligopoly, monopolistic competition, monopoly
B. Monopoly, monopolistic competition, oligopoly, perfect competition
C. Monopoly, oligopoly, monopolistic competition, perfect competition
D. Oligopoly, perfect competition, monopolistic competition, monopoly
18. Under both monopoly and perfect competition, a firm:
A. Is a price taker.
B. Is a price maker.
C. Operates where marginal revenue equals marginal cost.
D. Will earn economic profitsin the long-run.
19. Firms in Colorado dump waste into the Colorado River and as a result the people in California and Mexico cannot use the water. What type of market failure is most likely involved?
A. Inequity
B. Public goods
C. Externalities
D. Market power
20. Sources of microeconomic failure that may require government intervention include all of the following except:
A. The abuse of market power.
B. The need for private goods.
C. The need for public goods.
D. Inequities in the distribution of goods and services.
Part II.Problems
Problem 1 (10 points)
Using supply and demand analysis, for each of the following, explain the likely effect on the market for eggs. Indicate in each case the impact on equilibrium price and quantity.
- A surgeon general warns that high-cholesterol foods cause heart attacks.
- The price of bacon, a complementary product, decreases.
- An increase in the price of chicken feed occurs.
- Caesar salads become trendy at dinner parties. (The dressing is made with raw eggs.)
- A technological innovation reduces egg breakage during packing.
Problem 2 (20 points)
The graph below depicts the market demand and characteristics of a monopolistic firm.
a) What is the quantity supplied?
b) What is the price?
c) Compute the monopolist’s total profit
d) Compute profit per unit
Assume that the firm looses its monopolistic power and starts behaving like a perfectly competitive firm.
e) What is the quantity supplied?
f) What is the market price?
g) Compute the firm’s total profit
h) What is the maximum amount of money the monopolist firm would be willing to spend on lobbying for the monopoly power?
Problem 3 (10 points)
The following table shows some costs and prices faced by a company that produces submarines.
Output (submarines per year)
0
1
2
3
4
5
Price (millions per submarine)
_
$90
$80
$70
$60
$50
Total cost (millions per year)
$10
$30
$70
Accounting for Governmental and Nonprofit Entities
ISBN: 978-1259917059
18th edition
Authors: Jacqueline L. Reck, James E. Rooks, Suzanne Lowensohn, Daniel Neely